Understanding Corporate Stewardship, Governance and ... SAC Res… · Even though stewardship...

R E S E A R C H P A P E R S E R I E S 0 1

Understanding CorporateStewardship, Governance and Sustainability A L A N D S C A P E S T U D Y

This report is the outcome of a research collaboration between the Centre for Business Sustainability, Nanyang Technological University and Stewardship Asia Centre. It is principally authored by:

Copyright © 2020 Stewardship Asia Centre CLG LimitedNot to be used or reproduced without permission

Professor S. Viswanathan, Professor, College of Business, Centre for Business Sustainability Nanyang Business School Dr Kapil Verma, Assistant Professor, Indian Institute of Management, KozhikodeDr Yancy Toh, Head, Research and Development, Stewardship Asia CentreMr Ong Boon Hwee, CEO, Stewardship Asia Centre

Edited by Veena Nair, Senior Research Editor, Stewardship Asia Centre

Stewardship Asia Centre (SAC) is a thought leadership centre promoting effective stewardship and governance

across Asia. Positioned to inspire and catalyse change, SAC builds capabilities and platforms that enable

organisations to foster enduring success and responsible wealth creation for the long term, and to benefit the

wider community and future generations.

SAC collaborates with credible partners globally and works with corporations, state-owned enterprises,

family-owned businesses, institutional investors as well as non-profit organisations. Through its forums,

knowledge platforms and content, the Centre promotes the learning and application of concepts and practices

that will enable organisations to create value, and contribute to the well-being of society over the long term.

About Stewardship Asia CentreFostering Effective Stewardship and Governance Across Asia

1. Executive Summary

2. Introduction

3. Objective of the Project

4. Key Findings

4.1 Stewardship — The Concept

4.2 Evolution of Stewardship

• Stewardship in the 1990s

• Stewardship in the 2000s

• 2010s — Ethical Stewardship

4.3 Dimensions of Stewardship

4.4 Creating Stewardship Behaviours

• Role of the Leader in Promoting Stewardship

• Role of the Board of Directors

4.5 Differences between Stewardship, Sustainability and Governance

Mechanisms in the Corporate Context

• Differences between Corporate Stewardship and Corporate Sustainability

• Differences between Corporate Stewardship and Corporate Governance

5. Stewardship — Sustainability — Governance Nexus

5.1 Preliminary self-diagnostic tool for companies

6. Concluding Remarks and Future Research

7. Glossary

8. References

9. Appendix: Research Methodology

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Contents

02 STEWARDSHIP ASIA CENTRE RESEARCH PAPER SERIES

This report is the outcome of a research

collaboration between the Centre for Business

Sustainability, Nanyang Technological University

and Stewardship Asia Centre. The objective of this

study is to establish and contribute to a body of

knowledge surrounding the concept and practice of

stewardship, and to develop a clearer understanding

of its nexus to the concepts and practice of

corporate sustainability and governance.

The primary methodology used for this study is a

review of both the academic research and practice

literature on topics such as corporate stewardship,

corporate governance, sustainability, stakeholder

theory, agency theory, and related topics such as

servant leadership, trusteeship and family business.

We searched for all types of articles including

review papers, conceptual papers, papers focusing

on theory building, papers that developed findings

using empirical research, books and book chapters,

editorials, commentaries, and practitioner articles.

Over 1,600 articles and papers were identified, of

which over 200 were closely studied. This study

involved developing a framework to clarify and better

understand the evolving concept of stewardship and

its relation to governance and sustainability. The

findings of the study are summarised in the following

paragraphs.

The early articles in the academic literature

highlighted corporate stewardship as a leadership

orientation that focused on the long-term health and

profitability of the company as opposed to just short-

term profit maximisation. The initial focus was purely

on the investor’s long-term interests whether it was a

family business or a business with a wide shareholder

base.

Over the last two decades, the definition of

stewardship has broadened to include various

stakeholders’ interests, including interests of the

community, society and the natural environment.

The term ethical stewardship has been introduced

to highlight this broadened definition of stewardship.

The Gandhian model of trusteeship as defined by

Mahatma Gandhi also captures most elements of

corporate stewardship. Stewardship incorporates,

but is not just a leadership concept. A stewardship

mindset can be enacted across all levels of the

organisation through effective leadership and

management.

Past research has mostly focused on stewardship

as a concept. There have been only a few attempts

to identify the dimensions of stewardship and

to empirically measure it. The key dimensions of

stewardship include “sense of purpose”, “ownership”,

“long-term focus”, and strong, inclusive, and reciprocal

“relationships” (with employees, all stakeholders and

the community). While strong and ethical leadership

is critical for effective stewardship; processes,

procedures, metrics and appropriate governance

mechanisms are necessary to ensure that

stewardship is at the core of the organisation and in

all decisions and actions taken. That is where there is

a gap in our knowledge. While some firms have tried to

implement stewardship beyond the leadership level,

there is presently no guidance on procedures and

governance mechanisms necessary to implement

stewardship across the entire organisation. For

example, there is no prescription on how much the

organisation should focus on stakeholders’ interests,

when there is trade-off between investors’ interests

and stakeholders’ interests. Further research is

needed to make corporate stewardship a more widely

adopted practice globally.

Executive Summary1

03UNDERSTANDING CORPORATE STEWARDSHIP, GOVERNANCE AND SUSTAINABILITY

We have developed a framework to understand the nexus between stewardship, sustainability and governance.

Our key findings on the links between corporate stewardship, corporate sustainability and governance

are as follows:

• Without such enlightened governance

mechanisms, it is hard for companies to

achieve the sweet spot of intersection between

corporate stewardship, sustainability and

governance. Companies that are implementing

some form of sustainability and stewardship are

both at the nexus of corporate stewardship and

sustainability, as well as corporate sustainability

and governance. This will be elaborated in

Figure 5.1. Companies that have implemented

some sustainability efforts, but without any

stewardship-based leadership are at the nexus

of corporate sustainability and governance.

Almost all companies implement some form of

agency theory and checklist-based governance

mechanisms, at least in letter if not spirit.

Companies that do not have sustainability efforts

or leadership processes focused on stakeholders

other than investors are therefore just practicing

governance. The objective of all companies

should be to try to reach the ideal sweet spot of

the nexus of all three — corporate stewardship,

sustainability and enlightened governance

mechanisms that support the stewardship

mindset across the entire organisation.

• While corporate stewardship is a process of

leadership and a management mindset, corporate

sustainability, which also includes corporate

social responsibility (CSR), is more outcome-

based. In the absence of carbon taxes and

environmental and social regulations, stewardship

is perhaps the only way to create impact as well

as to achieve and practice sustainability and

CSR. While there are a few exemplary companies

that implement good sustainability and social

responsibility practices without formally adopting

stewardship concepts, these are few in number.

In effect, they are implementing stewardship

without actually using that concept formally.

• Corporate governance mechanisms have evolved

out of agency theory, and are intended to provide

checks and balances over the behaviour of agent

(or manager), so that the long-term interests of

the investor are taken into account in decision-

making. This might have become a checkbox

exercise in many organisations. However, if

governance mechanisms can be reimagined

and designed appropriately, it can be used as a

tool for wider implementation of stewardship.

Such governance mechanisms would include

internal governance of value systems not

mandated by external entities. The value systems

and organisational culture propagated both

across time and across different levels of the

organisation by such enlightened governance

mechanisms facilitate effective implementation

of stewardship behaviours across the entire

organisation.


The evidence that our organisations are not

working well is fully upon us. Even after the global

financial crisis of 2008, business financial scandals

continue to be reported. The CEO compensation

as a ratio to the median salary has skyrocketed,

primarily due to the deep shortage in the talent pool

for leadership. The limits of capitalism are being

questioned, and the calls for corporate leaders’

moral responsibilities to society are intensifying.

At the same time, economic development is

breaching natural resource limits. Thus, managing

climate change, and creating a net positive social

and environmental impact are two of the grand

challenges facing organisations today. Society has

questioned the egocentric perspective of business

interests that preoccupies much of management

practice. At the heart is the question: to whom, or

to what, are organisations responsible? (Bansal and

Song 2017).

The organisation is a social entity among various

stakeholders — for example: employees, government,

suppliers, consumers, trade associations, and

community. As the organisation aims to survive and

succeed, these relationships with other stakeholders

must be kept in mind by the top managers (T. Donaldson

and Preston 1995). On the other hand, climate change

and sustainability are perhaps the biggest challenges

facing humankind. Natural resources such as water

are being depleted quickly with water crises looming

across the globe. The planetary boundaries for many

aspects of the environment such as biodiversity and

greenhouse gas concentrations have already been or

are close to being breached (Rockström et al. 2009).

Corporate leaders and CEOs are expected to make

decisions in the best interests of the shareholders,

along with other key stakeholders. In doing so, they

can promote the growth of the organisations, thereby

facilitating the welfare and development of the

society. However, real-life examples of leadership

in large organisations tell an entirely different story.

It appears that many leaders have forgotten the

lessons learnt from the worldwide economic crisis

(2008–09) or the corporate scandals of Enron,

WorldCom, and others. In the recent decade, we saw

the unfortunate incidents such as the Facebook

data privacy scandal, the Rana Plaza disaster, and

the Volkswagen emissions scandal. Society lives

in constant pessimism resulting from the unending

examples of mismanagement, ethical misconduct,

and dishonesty within organisations. Many

stakeholders and think tanks have realised that the

pre-requisites for long-term survival of corporations

as well as of society are responsible leadership and

operations that create minimal negative impact, if

not net positive impact, for our natural resources and

community. It is slowly, but increasingly recognised

that corporate leaders owe both society, and those

with whom they work, a range of normative and

instrumental duties that extend the boundaries of

governance beyond the scope commonly taught

in today’s business schools or valued by the stock

markets fixated on quarterly earnings reports.

Fostering stewardship among organisations and

their leaders is an important step in the right

direction (Davis, Schoorman and Donaldson 1997).

Stewardship Asia Centre (SAC) has been providing

thought-leadership in fostering effective stewardship

and building capacity amongst organisations and

business leaders in Asia. The three main attributes of

“Steward Leaders” identified from prior research by

SAC are:

1. Leading with impact:

Steward leaders focus on promoting high levels of

employee involvement, that is, having employees who

are engaged and motivated at work. These employees

feel empowered and have a sense of pride in their

work as well as the organisation. At the same time,

such leaders are able to earn the respect and trust

of their employees by demonstrating high moral and

ethical standards.

Introduction2


2. Safeguarding the future of the organisation

In order to safeguard the organisation’s future,

steward leaders excel at managing risk as they aim to

balance the interests of shareholders as well as other

stakeholders for the long term.

3. Driving towards the greater social good

The ultimate objective of steward leaders is to

work towards the advancement of the society

and environment. With a strong ethical focus and

commitment to demonstrate responsible leadership,

such leaders are conscientious and empathetic,

and they work diligently towards the welfare of the

community.

Stewardship, as a concept, has appeared in

many different literatures including leadership,

management, strategy, family business, finance,

and humanities. The idea of stewardship gained

prominence in the 1990s, as it attempted to

provide a positive alternative to agency theory-

based governance. While agency theory assumed

that human beings are rational and self-interested

profit maximisers, stewardship theory argued that

individuals could also be motivated by the goals of

the shareholders (L. Donaldson and Davis 1991).

Later, the concept of stewardship was expanded

as scholars argued that steward leaders have

the interests of all stakeholders in mind as they

take important managerial decisions. Steward

leaders acknowledge and appreciate the trade-offs

between personal needs, organisational objectives,

shareholders’ expectations, and stakeholders’

interests. Such leaders make an honest attempt in

working towards organisational, collective goals, in

such a way that their personal needs are also met.

Stewardship is associated with a focus on long-term

wealth generation that is achieved with the help of

empowered and engaged employees.

Besides SAC’s efforts in defining the main attributes

of stewardship and a few other papers in the academic

and practitioner literature, there is currently limited

knowledge about the conceptual dimensions of

stewardship. More importantly, what is the linkage

between stewardship and other related concepts,

especially sustainability and governance?

There is a growing academic literature in finance

and strategy that investigates how corporate

sustainability and social responsibility strategies

impact the market value of the firm (Dyllick and

Hockerts 2002). There are also studies that look at

how specific supply chain related events such as

the Rana Plaza garment factory building collapse in

Bangladesh impact the market value of large firms

connected to suppliers in the event. The findings

of many of these studies are mixed (Golicic and

Smith 2013; Schaltegger, Lüdeke-Freund and

Hansen 2012). Possibly, that is why there is still

lack of clarity as to how stewardship, governance

and sustainability are connected. In the practice-

oriented management literature, thought leaders

such as Gary Hamel (Hamel 2012) have started

connecting stewardship with social responsibility,

albeit in an indirect fashion. The 1970 quote of

Milton Friedman on social responsibility has been

interpreted controversially by many scholars to

mean that corporations should only pursue profits.

However, recently, it has been reinterpreted to

imply that the long-term profits are maximised by

taking all stakeholders’ interests into account as

the negative externalities created by a firm will

eventually impact its reputation, the rules of the

game and the law (Harrison and Wicks 2013). One

could therefore argue that stewardship, governance

and sustainability are very much interconnected.

K E Y P O I N T S

• Impending environmental crisis and social issues

have forced the issue of to whom organisations

are responsible to the forefront.

• There is a need for steward leaders to take

the helm with stakeholders’ needs in mind and

implement strategies for long-term success as

the negative externalities caused by a firm will

eventually impact its reputation.

• Steward leaders need to lead with impact and

safeguard the future of the organisation by

focusing on high levels of employee involvement

and balancing the interests of shareholders and

stakeholders respectively.


This study is a collaborative effort between the

Centre for Business Sustainability, Nanyang

Technological University and the Stewardship

Asia Centre, who commissioned, funded and

co-developed the content of this research. The

objective of the study is to conduct a thorough

review of both practitioner and academic literature,

and to establish a body of knowledge and clear

understanding of the concept and practice of

stewardship. A second objective of the study is

to develop a deeper and clearer understanding

of corporate stewardship and its nexus to the

concepts and practice of corporate sustainability

and corporate governance.

The literature review attempts to inform and clarify

how the understandings and interpretations of these

concepts have evolved over the past thirty years,

and how they have manifested themselves in terms

of leadership practices and strategies adopted

by corporations. Another objective of the project

is to attempt to develop an understanding of the

relationship between stewardship and other topics

such as impact investment, responsible investing,

moral capitalism, ethical financing, and sustainability

reporting.

In this paper, we are exploring the concepts of

stewardship, governance and sustainability in the

corporate context. The terms 'corporate stewardship'

a n d ' s t e w a r d s h i p ' a re u s e d i n t e rc h a n g e a b l y

throughout the paper, so are the terms 'corporate

governance' and 'governance', as well as 'corporate

sustainability' and 'sustainability'.

Objective of the Project3


Key Findings4

4.1 Stewardship — The ConceptThe key findings were distilled from literature review.

Papers of highest relevance across management,

leadership, strategy, entrepreneurship, and family

business literatures were selected for detailed

analysis. See the Appendix for more details

regarding our research methodology.

Stewardship theory was introduced by Donaldson and

Davis in the 1990s (Davis, Schoorman and Donaldson

1997; L. Donaldson and Davis 1991). Agency theory

states that in corporations, managerial actions are

likely to be significantly distinct from those required

to maximise shareholder returns.

Owners are termed as principals and the managers are

agents — agency loss is the extent to which returns

to the owners would fall below what they would have

been if the owners had acted as the managers of the

corporation. The ‘model of man’ underlying agency

theory arguments is that of a rational, self-interested

actor who is only interested in maximising personal

economic gains.

Stewardship theory was thus positioned as a positive

alternative to the agency theory and its amoral

model of man. Donaldson and colleagues argued that

there is another model of man — an individual who

is motivated by a need to achieve, to gain intrinsic

satisfaction by performing challenging work and

exercising powers in a responsible manner, thereby

gaining the respect and recognition from peers and

seniors.

The fundamental assumption of agency theory —

that the interests of the principal and the agent tend

to diverge — was also challenged, as possibly, to the

degree that an executive feels their future fortunes

are bound to their current corporate employers

through an expectation of future employment or

pension rights, then the individual executive may

perceive their interest as aligned with that of the

corporation and its owners, even in the absence of

any shareholding by that executive. Stewardship

theory stated that the manager may not be seen as

an opportunistic shirker, and instead, should be seen

as someone who wants to do a good job by acting

as a good steward of the corporate assets. Hence,

stewardship theory started with this somewhat

narrow conceptualisation, in which, a steward leader

is one who can act in investors’ or stakeholders’ best

interests.

This concept of stewardship was first broadened by

Caldwell and colleagues (Caldwell and Hayes 2010;

Caldwell et al. 2008; Caldwell et al. 2007) in the form

of ‘Ethical stewardship’. Caldwell and colleagues listed

fifteen characteristics of stewardship, expanding

the domain of stewardship to argue that an ethical

steward is one who understands and acts in the best

interests of not just the shareholders, but all other

stakeholders as well. Leadership is seen as rising to a

virtue-based ethical model, and such characteristics

are seen to be visible in an ethical steward. Broadly,

the characteristics of ethical stewardship can be

summarised as follows:

• Ethical focus

• Authenticity (values-based leadership)

• Integrating interests of all stakeholders,

including shareholders

• Long-term wealth generation

• Serving the interests of society

• Empowering employees in order to maximise

their potential

‘Trust’ is emphasised to play a critical role in the

phenomenon of ethical stewardship. Ethical stewards

build trust by truly investing in and affirming the

identities of those whom they serve. Ethical stewards

seek to help all stakeholders, including employees


and shareholders, to achieve their greatest potential.

Such leaders are dedicated to the growth and welfare

of others with whom they serve or interact. Trust

implies that the leader acknowledges the desire to

enter into a social contract with others, and willingly

accepts the risks involved with that relationship.

Hence, ethical stewardship is described as an

ethically superior governance model that creates

long-term organisational wealth by generating higher

employee commitment (Caldwell et al. 2008).

This expanded conceptualisation of stewardship

was carried forward by other scholars into the early

2010s. Hernandez (2008 and 2012) stated that

according to stewardship theory, organisational

managers see greater long-term utility in other-

focused prosocial behaviour than in self-interested

short-term behaviour. Stewardship is defined as

“the extent to which the leader willingly subjugates

her/his personal interests to act in the protection of

others’ long-term welfare”. Stewardship is about an

ongoing sense of obligation to others based on the

willingness to uphold the relationship with employees,

shareholders and other stakeholders. Importantly,

it was also argued that individuals may not need to

hold a position of power or authority for enacting

stewardship behaviours, and hence, individuals at all

levels of the organisation can act as stewards of the

organisation.

4.2 Evolution of Stewardship

Stewardship in the 1990s

Agency theory is based on an amoral assumption

of human beings, who are viewed as rational actors

seeking to maximise their individual utility. Given a

choice, the rational individual chooses the option

that maximises individual gains. Owners become

principals and they hire executives or managers

known as agents, who are perceived to maximise

their own utility. The principal incurs agency costs

when their interests diverge from the interests of

the agents. In addition, it is highly likely that their

interests would diverge. Hence, owners implement

governance-based mechanisms to minimise such

agency losses. Two well-known mechanisms are

alternative executive compensation schemes

Table 4.1: Timeline of Evolution of Concepts and Theories on Corporate Stewardship

• Steward willingly subjugates personal interests to act in the protection of others’ long-term welfare (prosocial action)


and governance structures. Financial incentive

schemes such as stock options are used to align

the principal-agent interests. Board of directors

also keep potentially self-serving managers in

check by performing audits and performance

evaluations. Agency theory is useful when parties’

interests diverge as it shows useful ways to bring

in greater alignment through proper monitoring and

compensation systems (Jensen and Meckling 1976).

Stewardship theory is rooted in positive psychology

and examines circumstances in which managers act

as stewards and are motivated to act in the best

interests of the shareholders. Thus, stewardship

theory was introduced with a somewhat narrow

conceptualisation, as an alternative to agency

theory. Stewards in large organisations with

competing shareholders’ objectives are motivated

to take decisions that are in the best interests of

the whole group. Thus, a steward’s autonomy should

be deliberately extended to maximise the benefits

because the individual can be trusted.

Stewardship in the 2000s

Stewardship theory looks at situations in which

managers and employees behave as stewards whose

motives are aligned with those of the organisation.

Hence, stewardship arguments are applicable to

the family business context where the owners tend

to play a greater role in managing the operations

of the business. It is therefore not surprising that

stewardship theory has been extensively covered

in the family business literature. Productive family

relationships can be a source of competitive

advantage for family firms as in such cases, family

members work together and act as stewards of

the organisation (Eddleston and Kellermanns

2007). Even in this literature, the focus was on the

managers acting in the best interests of the owners.

Other stakeholders such as suppliers, customers and

community are rarely mentioned in these articles.

2010s — Ethical stewardship

Ethical stewardship expanded the concept of

stewardship to include shareholders as well as all

other stakeholders. A steward is thus seen as the

‘integrator of shared interests’ with a responsibility

to achieve self-actualisation for the organisation

and its employees (Caldwell and Hayes 2010).

Emphasising service over self-interests, steward

leaders treat their followers as owners and partners.

However, to achieve the moral objectives implicit

in stewardship, businesses need to integrate both

economic and social performance in their goals.

Long-term wealth creation becomes a key objective

for steward leaders, as they attempt to benefit all

stakeholders of the organisation. This long-term

focus ensures that leaders avoid self-defeating

short-term decisions that improve their firm’s

market value in the short-run, but damage the firm’s

key mission, which is to take actions aligned to the

best long-term interests of all stakeholders. At the

normative level, steward leaders are committed to

the welfare and growth of shareholders, employees

and other stakeholders: thereby honouring

transformational obligations towards society. Thus,

ethical stewardship actually expanded the domain of

stewardship by arguing that steward leaders act in

the best interests of all stakeholders. At the same

time, steward leaders recognise that stakeholders’

interests are rarely perfectly aligned. The steward

then must find creative solutions by relying on

a clear vision and mission that demonstrates a

commitment to excellence while taking care of the

community and other stakeholders.


Recently, Balakrishnan, Malhotra and Falkenberg (2017)

discussed the connection between stewardship and

the Gandhian model of trusteeship (Gandhi 1942).

Mahatma Gandhi stated that individuals need to have

the wisdom to balance self-interest with prosocial

objectives as such an approach can sharply reduce

poverty around the world. When businesses take care

of all their stakeholders, including their shareholders,

then ‘shared value’ is created in the capitalist system.

Gandhi further emphasised that leaders must run

businesses as trustees and use the wealth created to

improve society, after keeping a reasonable profit for

themselves.

Trusteeship is about the owners sharing not just

their material wealth but also their knowledge and

talents for the welfare of the society. Elaborating

on trusteeship, Gandhi stated that businesses

should support workers’ rights, including the right to

decent salaries, a clean working environment; and

facilities for inexpensive, nutritious food and medical

treatment.

Trusteeship Stewardship

Expanded the concept of ‘shared value’ through

reciprocal responsibility principles.

Provides a normative basis for considering

all stakeholders including employees and

shareholders.

Balancing self-interest with prosocial goals leads to

long-term as well as short-term wealth creation.

Prioritising prosocial over self-serving behaviours

leads to long-term social welfare as well as

business performance.

Owners and managers balance interests of different

stakeholders in pursuit of shared value.

Owners, managers and employees engage in

social contracts to make decisions in the best

interests of all stakeholders.

All individuals are trustees in the society, and they

respect moral principles; duties are more important

than rights.

Stewards exist at all levels of the organisation, as

they function following the rules of fairness and

reciprocity.

Table 4.2: Connection between Stewardship and Gandhian Model of Trusteeship

4.3 Dimensions of StewardshipA majority of the research on stewardship remains

at the conceptual level. Very few scholars have

attempted to identify and empirically examine the

dimensions of stewardship. Stewardship should

ideally be associated with a range of organisational

behaviours, such as far-sighted financial

investment, prosocial employment practices,

decentralised decision-making, along with proactively

understanding and considering the interests of

all stakeholders other than the shareholders and

employees. Most empirical studies do not capture

the entire set of these dimensions (Neckebrouck,

Schulze and Zellweger 2018). For instance, Le Breton-

Miller, Miller and Lester (2011) only considered

far-sighted financial behaviour while assessing

stewardship. Neckebrouck and colleagues (2018)

measured stewardship in terms of two dimensions —

financial stewardship and organisational stewardship.


However, they did not take into consideration the fact

that stewardship includes acting in the best interests

of all stakeholders. Therefore, there is certainly a need

for greater research on identifying and empirically

examining the dimensions of stewardship.

SAC conducted an in-depth study on family business —

especially since family businesses are highly pertinent

to the phenomenon of stewardship. In that study, SAC

identified the following five dimensions or concepts of

stewardship:

1. Purpose:

Stewardship is demonstrated when the organisation

and its leaders communicate greater clarity of purpose.

These organisations perfectly enact their mission,

vision and values. At the same time, employees get an

opportunity to refine and review the goals and values of

the organisation.

2. Ownership:

Steward leaders build a culture that is based on high

levels of employee ownership in the organisation’s

activities; that is, employees have a collective sense

of pride in the organisation, and they are proactive

in suggesting solutions to complex problems and

dynamic situations. Employees have a clear sense of

responsibility, both individual and shared; and they

work towards creating long-term social and economic

benefits for the stakeholders who play an important role

in the success of the business.

3. Long-term view:

Organisations with a stewardship mindset do not ignore

long-term considerations under the pressure of short-

term issues. These organisations spend and invest

wisely and take calculated risks to reap rewards in the

future.

4. Relationships:

In order to achieve long-term success, businesses

must maintain strong and reciprocal relationships

with all the stakeholders. Steward leaders develop

relationships with internal and external stakeholders

by fostering win-win collaborations. Such organisations

conduct stakeholder analysis to engage stakeholders

on a continuous basis so as to ensure timely problem

identification and resolution.

5. Community:

In organisations that implement stewardship well,

success is defined in terms of doing well, doing good

and doing right. Long-term wealth creation becomes

a means to give back to the society, thereby making a

positive social and environmental impact.

At the same time, stewardship behaviours can

be enacted across all levels of the organisation.

In line with such arguments, a few scholars have

attempted to assess the stewardship climate within

an organisation. Neubaum, Thomas, Dibrell and Craig

(2017) created and tested for a stewardship climate

across six dimensions:

1. Organisational identification

2. Collectivist orientation

3. Power distance

4. Involvement orientation

5. Use of personal power

6. Intrinsic motivation

These six dimensions reflect the extent to

which employees share the perception that

their organisational routines foster stewardship

behaviours and values across the company.


4.4 Creating Stewardship BehavioursIn an organisation, stewardship behaviours can be

created or facilitated by three mechanisms (Caldwell

and Hayes 2010; Caldwell et al. 2008; Hernandez

2008 and 2012):

1. Normative mechanism (duty to benefit society):

Stewardship theory is clearly providing a normative

argument to include the interests of all stakeholders,

including shareholders. Leaders can be encouraged

to act as stewards when they see it as their duty

to consider everyone else who are affected by their

decisions. This is also in line with the trusteeship

model proposed by Mahatma Gandhi — duties carry

more weight than rights.

2. Instrumental mechanism (benefits to

stakeholders): Stewardship behaviours can be

promoted when the leaders acknowledge that it

is in the organisation’s best interests to act after

examining the impact on all stakeholders.

Steward leaders consider the trade-offs between the

interests of stakeholders, and they also understand

the trade-offs between short-term and long-term

benefits for their beneficiaries. Thus, while normative

mechanisms focus on stewardship as a norm or

duty, instrumental mechanisms focus on the fact

that stewardship can bring long-term benefits to all

stakeholders including shareholders.

3. Affective mechanism (empathy towards

stakeholders): Here, stewardship behaviours can be

promoted by developing an emotional connection

between the organisation and all other stakeholders.

When the leaders have a high sense of empathy

towards the employees, shareholders and other

stakeholders, they tend to act as stewards. Empathy

includes both the emotion — feeling the effects of

one’s decisions on others, as well as the awareness

— knowing the consequences of one’s decisions on

others.

Figure 4.1: Mechanisms for Facilitating Stewardship Behaviour

StewardshipBehaviours

Benefits to stakeholders(instrumental mechanism)

Duty to benefit society(normative mechanism)

Feeling of empathy(affective mechanism)


Role of the Leader in Promoting Stewardship

Mohrman, O’Toole, and Lawler III (2017) identified

four key roles of a leader in promoting stewardship

behaviour. They are:

1. Mission, vision or value statements:

Such statements are the key in making the

employees understand the goals and objectives of

the organisation — highlighting the fact that the

organisation will proactively take care of the interests

of all stakeholders.

2. Role model of behaviour within the organisation:

Leaders themselves must act as role models of

behaviour within an organisation. Implementation

being the key factor — when the employees view

the leader as acting like a steward, they also tend to

behave in a similar manner.

3. Hiring and promotion decision:

It is well known that whatever is rewarded gets

done. Leaders promote stewardship culture by hiring

the right kind of people in the first place, and then

ensuring that promotion decisions are taken after

giving weightage to the stewardship behaviours

enacted by the employees at all levels.

4. Rewarding ethical behaviours:

Leaders can inculcate an ethical culture by rewarding

ethical behaviours, e.g. by appreciating the efforts of

whistle-blowers in an organisation.

Role of the Board of Directors in Promoting

Stewardship

1. Evaluate ethical culture

2. Evaluate ethical aspects of firm’s strategy

3. Evaluate ethical behaviour of the leadership

team

4. Develop a compliance management system

In their chapter on “leading socially responsible,

value-creating corporations” in the book Corporate

Stewardship: Achieving Sustainable Effectiveness,

Brown and Khurana (2015) suggested that the board

of directors can and should play a significant role in

promoting stewardship behaviours across all levels of

the organisation.

As stewardship implies motivating employees

to behave ethically, the board of directors must

continually evaluate the ethical culture of the firm.

It is also well known that employees’ behaviours

are a direct result of the firm’s strategy. Thus, it

becomes important to verify the ethical aspects of

the firm’s strategy. If the organisational goals and the

processes implemented to achieve those goals are

ethical, the employees are more likely to demonstrate

ethical behaviours. Morally correct ethical goals are

also likely to lead to ethical behaviours within the

leadership team; however, the board of directors must

also continually evaluate the actions and decisions of

the leadership team.

Implementing a stewardship culture in the organisation

requires propagating stewardship values and culture

to people at all levels of the organisation, through

multiple generations of leadership. As organisations

move towards a stewardship culture, the board

of directors need to keep a watchful eye on the

employees and leaders to ensure minimum possible

deviations from stewardship behaviours. To check for

any possible deviations from stewardship behaviours,

the board of directors may also develop a compliance

management system. The aim of this system is to

ensure that any decisions or actions taken against

the spirit of stewardship are noticed and rectified in

a timely manner. Such governance structures allow

organisations to develop more targeted remedies

to realign and re-educate managers and other

employees towards stewardship behaviours. This

requires developing appropriate procedures and

reporting mechanisms as well as mechanisms to

transmit the value systems across people through

appropriate training, development and recruitment

processes. Such enlightened corporate governance

mechanisms facilitate effective implementation of

stewardship behaviours and strategies that address

all stakeholder concerns for the long term.


4.5 Differences between Stewardship, Sustainability and Governance Mechanisms in the Corporate ContextStewardship is viewed as a leadership process and

management mindset that is brought to bear in

every strategic and operational decision across the

entire organisation. Based on positive, prosocial,

and intrinsically motivated model of human beings,

stewardship refers to the leadership approaches

taken to proactively make decisions after taking

into consideration the interests of all stakeholders,

including employees and shareholders.

Sustainability, which includes social responsibility,

is an outcome-based phenomenon. Organisations

attempt to minimise the negative effects of

their operations on the environment and society.

Sustainability efforts normally tend to be reactive in

nature. However, in organisations that are stewardship

oriented, sustainability efforts can be proactive.

The literature on governance has largely been

dominated by agency theory. Governance refers to

the mechanisms used to utilise the resources within

an organisation and regulate the behaviour of the

agent through rules and guiding principles. The table

given below shows the key differences between

stewardship, sustainability and governance.

Table 4.3: Key Differences between Stewardship, Governance and Sustainability in the Corporate Context

Stewardship Governance Sustainability

Stewardship is the responsible

and wholehearted management

of entrusted assets so as

to pass them on in a better

condition. It also implies that

commons assets and natural

resources are also cared for and

passed on in a better condition

across generations. Stewardship

endeavours to promote the

success of companies by

incorporating the short-term

as well as long-term interests

of shareholders as well as all

other stakeholders. Stewardship

focuses on the process of

leadership and management.

A steward leader willingly

subjugates personal interests to

act in the protection of others’

long-term welfare.

Procedures and mechanisms that

help in determining the broad

uses to which organisational

resources will be deployed

and the resolution of conflicts

among the participants of the

organisation.

Corporate sustainability refers

to the ability of a firm to

nurture and sustain itself as

well as all its natural resources

and communities over the long

run by effectively meeting

the expectations of diverse

stakeholders.

Dir

ecti

on


Table 4.3 (continued): Key Differences between Stewardship, Governance and Sustainability in the Corporate Context

Stewardship Governance Sustainability

• Maximising organisational wealth to serve interests of all stakeholders.

• Maximising organisational performance by minimising agency costs.

• Maximising organisational performance along with reducing negative impact on the society and environment.

• Self-actualising man

• Prosocial, cooperative behaviour

• Long-term oriented

• Economic (self-serving man)

• Individualistic, short-term oriented

• Act with the understanding that:

• Systems are interconnected

• Tight interconnection between business and environment

• Stewardship theory

• Stakeholder theory

• Corporate responsibility

• Agency theory

• Ecology, systems theory

• Developmental economics

• Natural resource-based view

• What are the normative duties of leaders and firms towards the society and environment? What instrumental benefits do they bring?

• How to optimise performance and accountability within an organisation?

• How to align the divergent interests and risk preferences of owners and managers?

• What are the interconnections of economics, environment and society?

• How to reduce negative impact of organisational design and practices on the environment?

• Normative – sense of duty

• Instrumental – benefits to all stakeholders

• Affective – empathy towards all stakeholders

• Satisfy the extrinsic, lower-order needs (physiological, security, economic)

• Leadership’s values and sense of ethical responsibility

• Leader’s ecological sense making

• Collectivistic, people-centred culture

• Management philosophy (long-term, based on trust)

• Control-oriented, individualistic culture

• Management philosophy (short-term, cost control)

• Rules-based adherence to regulatory requirements

• Board of directors

• Environmental regulation

• Industry regulation

• Stakeholder integration

• Sustainability and ESG reporting standards

• Ambiguity about the dimensions of stewardship

• Lack of empirical research, mostly normative

• Lack of empirical support for its key arguments

• Too much emphasis on rules for achieving minimum standards

• Not confirmed whether sustainability contributions lead to improved firm or environmental performance

Vis

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Differences between Corporate Stewardship and

Corporate Sustainability

Stewardship is viewed as a leadership process and

management mindset. Based on positive psychology

and moral assumptions about the model of human

beings, stewardship focuses on an ideal or exemplary

view of leadership in organisations. Organisations

that implement stewardship well focus on maximising

long-term wealth creation with the aim of benefitting

society and the environment. However, stewardship

does not prescribe any minimum standards or trade-

off points.

Sustainability, on the other hand, is outcome-based.

Sustainable development in organisations is being

advocated after it has been acknowledged that

economic development is breaching natural resource

limits. Excess industrial production and human

consumption is leading to environmental imbalances,

which would eventually harm the business and

economic systems even though such effects might

not be immediate, visible or predictable (Bansal and

Song 2017).

Corporate sustainability or sustainable operations

is seen as a way of ensuring that a corporation’s

activities and operations create a positive impact

(or at least do not create a negative impact) on

the environment or natural resources. Arguably,

stewardship is one of the best possible ways to

implement and achieve corporate sustainability.

Stewardship is perhaps the only way to achieve

sustainability in the absence of taxes, rules and

restrictions. Stewardship implies a positive, proactive

approach towards tackling the damage caused by

businesses to the environment and the society.

In reality, many organisations focus on minimum

outcomes, that is, they aim to reduce the negative

impact of their operations on the environment and

society by just the minimum amount necessary. Thus,

a majority of the sustainability-related actions tend to

be reactive in nature. Stewardship, on the other hand,

if followed in letter and spirit, advocates creating

a positive impact on the society and environment.

Stewardship offers a proactive, intrinsic motivation-

based approach using which sustainability initiatives

can be implemented within organisations. While there

are a few exemplary companies that implement good

sustainability and social responsibility practices,

without formally adopting stewardship concepts,

such companies are few in number and in effect, they

are implementing stewardship without actually using

that concept formally.

Differences between Corporate Stewardship and

Corporate Governance

Governance is a very broad and general term.

Governance refers to determining the broad uses to

which organisational resources are deployed. It also

includes mechanisms to resolve conflicts among the

various participants in organisations.

Majority of the governance literature is dominated

by agency theory, which focuses essentially on

regulating the behaviour of the agent. Governance

mechanisms, thus, take the form of rules and guiding

principles, especially on information disclosures

and management practices, and act as preventive

measures with the aim of achieving the minimum

necessary performance along all dimensions of

stakeholders’ interests rather than exemplary

performance. With its focus on information

disclosures, there is a danger of current governance

mechanisms becoming a checkbox exercise in many

organisations.

However, agency and stewardship approaches must

not be seen as opposites. Agency mechanisms

can ensure minimum standards, and stewardship

maximises the benefits to the firm and society.

As stated earlier, even in an organisation with a

stewardship culture, appropriately redesigned

enlightened governance mechanisms can be used as

a tool to effectively implement stewardship across

all levels of the organisation. Such enlightened

governance mechanisms would comprise procedures,

reporting mechanisms as well as employee training,

development and recruitment processes that are

intended to effectively implement stewardship

behaviours and strategies that address all stakeholder

concerns for the long term.


Concept and evolution of stewardship

• In the 1990s, stewardship theory was first

introduced as a positive alternative to agency

theory and its ‘amoral’ model of man which posited

that man acted only in pursuit of his own personal

gain.

• In the 2000s, good stewards were those

whose motives were aligned to those of

their organisation. As such, stewardship was

frequently mentioned in conjunction with family

businesses.

• In the 2010s, stewardship theory had developed

into ethical stewardship where good stewards

act in the best interests of both shareholders

and stakeholders.

• Trusteeship is conceptually similar to

stewardship in that individuals act to balance

self-interests with prosocial objectives — they

share their knowledge and use their talents

for the welfare of society. Business owners as

trustees keep a portion of their profits and use

the rest for the good of society.

Dimensions of stewardship

• Stewardship consists of five concepts: Purpose,

Ownership, Long-term View, Relationships, and

Community

• Other factors that assess stewardship within

an organisation: organisation identification,

collectivist orientation, power distance,

involvement orientation, use of personal power

and intrinsic motivation.

Creating stewardship behaviours

• Stewardship behaviours can be created by three

mechanisms:

- Normative mechanism (duty to society): Use

the rationale provided by stewardship theory

to take into account the interests of all

stakeholders, including shareholders.

- Instrumental mechanism (benefits to

stakeholders): Consider the benefits as well

as the trade-offs to various stakeholders to

determine a course of action that creates the

most long-term benefit for the stakeholders

of the organisation.

- Affective mechanism (feeling of empathy):

Develop empathy and awareness between

organisational leadership and stakeholders.

Role of the leader and Board of Directors in

promoting stewardship

• Steward leaders promote stewardship by having

a mission statement to proactively take into

account the interest of stakeholders; acting as

a role model; hiring people with the right mindset;

and rewarding people for the right behaviours.

• An organisation’s Board of Directors play a

significant role in promoting stewardship by

continually evaluating the ethical culture of the

organisation, the ethics of its strategy as well

as the actions and decisions of the leadership

team.

Differences between stewardship, sustainability

and governance mechanisms

• Stewardship is viewed as a leadership process

and management mindset that informs every

strategic and operational decision made

throughout the company.

• Sustainability is defined as an outcome-based

phenomenon aimed at minimising the negative

effects of operations on environment and

society. Sustainability measures by organisations

tend to be reactive but can be proactive when

implemented with a stewardship lens.

• Governance seeks to counteract the agentic

behaviours of individuals and organisations by

regulating the utilisation of company resources

through rules and guiding principles. Enlightened

corporate governance mechanisms that operate

in letter as well as in spirit can complement the

stewardship approach by transmitting the value

systems that address stakeholders’ concerns

for the long term.

K E Y P O I N T S


Building on our findings, we now develop a

framework, as encapsulated in Figure 5.1, to

explain the nexus between corporate stewardship,

corporate sustainability and corporate governance.

We first discuss segment G, in which organisations

adopt conventional governance mechanisms at least

by letter if not spirit. This is the current state in many

corporations in the world. There is no attempt to

incorporate the stakeholders’ interest or to address

the negative impact of the firms’ operations on

the stakeholders and community. While the firm’s

leadership might be great from the perspective

of the short-term investor, there is no attempt to

steward the company. The two other pure states

are segment E and segment F corresponding to

corporate stewardship and corporate sustainability.

As mentioned earlier, stewardship as a concept has

evolved from a focus on the long-term interests of

the investors to that of all stakeholders. Therefore,

a company that has implemented stewardship

would have achieved some good outcomes for their

stakeholders, that is, to demonstrate a certain

level of sustainability and social responsibility. In

addition, there would definitely be implementation

of conventional governance mechanisms by letter

and in spirit. In the absence of taxes and regulations,

it is unlikely that a company is purely achieving

sustainability (segment F) without any governance

mechanisms or good leadership. At the minimum, they

would be complying with governance standards that

require them to report their sustainability actions

through integrated reporting. Therefore, we would

argue that segment E and F are empty with virtually

no organisations belonging to these categories.

Many companies would fall in segment C, which is

an intersection of governance mechanisms and

sustainability. Companies with weak leadership in

this segment C implement traditional governance

mechanisms (based on agency theory) and implement

it as a checkbox exercise along with sustainability

reporting and other sustainability efforts due to

implicit pressure from media and non-governmental

organisations (NGOs). Companies in this segment

could also be those that have proactively

implemented some aspects of sustainability or social

responsibility as well as conventional governance

mechanisms, partly based on their own initiatives and

partly due to increasing focus from stakeholders and

investors. However, they might not have implemented

this systematically, and might not have put in place a

stewardship culture or leadership style to ensure its

continuity.

Companies belonging to segment B have some sort of

stewardship culture embedded in them, and achieved

some sustainability-related outcomes. While such

companies would not have implemented the ideal

form of new governance mechanisms to achieve the

true nexus of all three concepts, they would have

implemented conventional governance mechanisms

and therefore would belong to both segment B and

segment C, but not segment D.

Companies, especially family businesses that

had steward leaders early on and implemented

stewardship based on the earlier definitions of

stewardship and followed governance codes with

stewardship intent, would belong to segment A.

Such organisations attempt to follow the positive

stewardship-based and trust-based governance

codes. Such firms implement formal governance

mechanisms in letter as well as in spirit. It is important

to note that stewardship and agency theory-based

governance should not be seen as opposites, as

both these phenomena can coexist within the same

organisation. Even in an organisation with strong

stewardship, governance mechanisms are required to

observe and rectify any deviations from the expected

Stewardship — Sustainability — Governance Nexus

5


norms of behaviours. Agency mechanisms do ensure

minimum standards, and simultaneously, stewardship

culture should be encouraged to maximise benefits

to the society (Madison et al. 2016). In family

businesses with stewardship, the stewardship-

based governance codes they use might be informal

and unwritten. Understanding and documenting

these governance codes will be useful to develop

enlightened governance mechanisms for effectively

implementing stewardship in large organisations.

However, these organisations lack a focus on

sustainability, as they might not proactively aim to

minimise their negative impact on the environment

and society, as their focus is the long-term interests

of investors as well as employees, communities and

stakeholders close to them, but not necessarily all

stakeholders. It should be noted that the attention to

climate change and sustainability among corporates

is a recent phenomenon and the broadening of

stewardship to include the long-term interest of

all stakeholders instead of just investors is recent.

Therefore, even some well-minded organisations with

strong leadership and stewardship might belong in

segment A. With relentless attention to sustainability

and all stakeholders’ interests, these organisations

would find it easy to make the transition to the ideal

sweet spot, which is segment D.

We finally discuss the ideal sweet spot, where all

three — stewardship, sustainability and governance

— are present in an organisation. This corresponds to

the segment D in the figure. In this state, stewardship

culture pervades across the entire organisation from

the top leadership to the rank and file employee.

All the stakeholders’ interests are incorporated

into the decision-making and practices of the

organisation. The firm takes a long-term view, and

rather than just traditional governance mechanisms

based on agency theory, the organisation would

have implemented new and enlightened governance

mechanisms that integrate stewardship intent

E

G F

CORPORATESTEWARDSHIP & SUSTAINABILITY

BAD

C

CORPORATESTEWARDSHIP

SUSTAINABILITY & GOVERNANCE

CORPORATEGOVERNANCE

CORPORATESUSTAINABILITY

CORPORATE STEWARDSHIP,

SUSTAINABILITY & GOVERNANCE

CORPORATESTEWARDSHIP &

GOVERNANCEPROCESS AND LEADERSHIP FOCUSED

OU

TCO

ME FOCUSED

MECHANISM

FO

CU

SE

D

CORPORATE STEWARDSHIP, SUSTAINABILITY & GOVERNANCE• Ideal nexus of stewardship, sustainability &

governance (Stewards of the future)

D

CORPORATE STEWARDSHIP• Leadership based on

enlightened self-interest• Prevalence of stewardship

culture that focuses on ownership mentality, purpose and values, long-term perspective, relationships and community

E

CORPORATE SUSTAINABILITY• Oriented towards

reducing the harm of economic development on natural systems

• Identifying planetary boundaries

• Levels of analysis: systems

F

CORPORATE STEWARDSHIP & SUSTAINABILITY• Leadership based on

long-term orientation and broader social responsibility

• Voluntary implementation of science-based targets to grow natural capital and build business resilience

• Levels of analysis: systems (institutional, social, economic, ecological and planetary)

B

CORPORATE STEWARDSHIP & GOVERNANCE• Governance codes that

integrate stewardship intent • Implementation in spirit

and letter• Level of analysis:

Stakeholders, including shareholders

A

CORPORATE SUSTAINABILITY & GOVERNANCE• Focus on accountability

and transparency regarding ESG requirements

• Disclosure in the form of integrated reporting

• Levels of analysis: Institutional, social, environmental and legal systems

C

CORPORATE GOVERNANCE• Focus on letter of code

instead of spirit• Implementation tends to

focus on meeting baseline requirements of regulations

• Level of analysis: Principal-Agent relationship

G

Figure 5.1: Stewardship-Sustainability-Governance Nexus in the Corporate Context


across all levels. These governance mechanisms are

followed in both spirit and letter, and help implement

stewardship. Such governance mechanisms would

include internal governance of value systems not

mandated by external entities. The value systems

and organisational culture propagated both across

time and different levels of the organisation by such

enlightened governance mechanisms facilitate the

effective implementation of stewardship behaviours

across the entire organisation. Naturally, with all the

stakeholders’ interests given importance and with

the appropriate governance mechanisms in place,

the organisation would be focused on sustainability

and social responsibility as that is in the long-term

interests of the stakeholders. While this may sound

very rosy, it does not mean that the organisation

does not face issues or trade-offs. Even individuals

as well as independent entities face trade-offs in

their everyday decisions, and this is true so long as

we live in a resource-constrained world. So long as the

positive impacts from these decisions outweigh the

negative impacts, one could say that the individual or

the independent entity has done well and done good.

In a similar vein, in the ideal sweet spot in segment D, the organisation will face trade-offs. There will

be the occasional negative impact to some of the

stakeholders due to the organisational decision-

making and deployment of resources. So long as the

net impact to all stakeholders is positive, one could

argue that the organisation has achieved the ideal

nexus in segment D.

When a majority of organisations achieve the sweet

spot of stewardship, sustainability and enlightened

governance, it will lead to an ideal business world,

where we would have truly achieved the espoused

state of capitalism (which could also be termed as

“responsible”, “moral”, or “inclusive” capitalism).

This is a situation where citizens enjoy the fruits of

capitalism, and not suffer negative consequences

from it. This can lead to greater intergenerational

wealth, equity and sustainable value creation.

To be in this ideal nexus, the organisation would have

developed highly evolved governance mechanisms.

Without such enlightened governance mechanisms,

it is hard for companies to achieve the sweet spot

of intersection between corporate stewardship,

sustainability and governance. In larger organisations,

achieving this requires a tremendous amount of

consensus building, incentive mechanisms that are

not necessarily focused on profit improvement or

cost reduction, and an ability to keep all employees

intrinsically satisfied by focusing on all stakeholders'

interests. For these reasons, it is perhaps much easier

to achieve this in smaller, privately held companies,

family owned companies or single-owner companies.

Organisations such as Patagonia and Interface are

probably very close. See Figure 5.2 for an illustration

of Patagonia’s sustainability and stewardship efforts.

These firms generate sustained returns for the

investor and yet invest substantially to advance

society, environment and other stakeholders.

These firms are still driven by founder-leaders or

have the strong imprint of the founder’s mindset in

their decision-making processes. While they might

not necessarily be practicing stewardship in all its

dimensions, they are effectively steward leaders.

Given that they are relatively smaller organisations,

they might not have formally developed any advanced

or enlightened governance mechanisms that encode

their sustainability and stewardship focus. Any

enlightened governance that exists are most likely

informal and unwritten. In fact, they are renowned for

their sustainability and social responsibility focus,

not for stewardship or governance mechanisms.

While we have to classify them under segment F or

segment C, in terms of results, their achievements

similarly placed them under segment D, as their

leaders’ passion and focus achieve the equivalent of

stewardship and advanced governance mechanisms.


Figure 5.2: Patagonia’s Sustainability and Stewardship Efforts

An example of a company that is close to the sweet spot of the intersection between corporate stewardship,

sustainability and governance is Patagonia, a privately owned outdoor clothing goods company that was

founded in 1973. Its estimated revenue in 2017 was about US$210 million with 1000 employees. Even

though it has seen several CEOs after its founding CEO and owner, Yvon Chouinard, stepped down in 1999,

the vision and the mindset of Mr. Chouinard is still very much within the company in all its activities and

decision-making processes. Mr. Chouinard was an avid mountain climber, and his first business venture in

the 1960s was a company to make pitons, which are metal spikes that provide safety to rock climbers in the

event of a fall. However, Chouinard soon realised that the metal pitons created permanent damage to the

mountain rock face, and he abandoned his profitable piton business and steered his focus towards more

environmentally friendly alternatives. This started his journey of businesses grounded by consciousness to

the environment and the stakeholders. The first environmental initiative that Patagonia launched was 1%

for the Planet, wherein it committed either 1 per cent of its revenue or 10 per cent of its profits (whichever

was higher) every year to environmental initiatives (Dossa and Szekely 2015). Part of the fund was used

for charitable initiatives and part was paid to its employees to work on local environmental projects. Note

that this commitment was made in 1986, when 'climate change' or 'environmental externalities' were not

part of the popular lexicon. Even today, very few companies have committed to such an initiative. In 1996,

the company committed to only sourcing for organic cotton, even though this increased their material

cost by 300 per cent and reduced the number of cotton-based products from 91 to 66. Cotton accounted

for 20 per cent of their source material, and they took this initiative when they realised that non-organic

cotton caused significant damage to the environment because of the extent of chemical use in its

cultivation. Even though the cost to Patagonia increased substantially due to the switch to organic cotton,

the impact on the customer’s price was only a 2 per cent increase, as Patagonia agreed to a reduction in

their profit margins. Patagonia has been very transparent about their social and environmental footprint

and has provided transparency to their sourcing channels through an interactive map on their website:

https://www.patagonia.com/footprint.html.

Unlike plastics or metals, it is difficult to recycle apparel and break them down back into original raw

materials. Therefore, in 2005 they launched a campaign to repair and reuse their products and extend

its life by the “common threads recycling program” and “worn wear”, where they created a second-hand

market for their products. Note that this is unlike the strategy of many market leaders for other consumer

products, where the revenue growth model is dependent on customers upgrading and replacing their

products every few years. While this initiative was good for the society and environment, it would have

clearly meant lesser revenue and profits for Patagonia. Finally, in 2011, they launched the Don’t Buy our

Jacket advertising campaign, where they highlighted their environmental footprint of manufacturing

the jacket in an attempt to reduce consumerism and environmental waste. While this move should have

surely decreased their revenue potential, counter-intuitively, more consumers bought their jacket, as the

perception was that Patagonia’s jackets were more environmentally friendly than other jackets in the

market.

While Patagonia’s founder and its leadership might not be consciously be thinking of the term stewardship,

in effect that they have a stewardship mindset that helps them in their sustainability efforts. All the CEOs

after the founder, Mr. Chouinard, also possessed the same stewardship mindset. Therefore, enlightened

governance mechanisms, if any, were probably unwritten and informal.


With the framework we developed, we have attempted

to provide a better understanding of the nexus

between stewardship, sustainability and governance.

However, in this framework, except in segment D,

we have implicitly defined governance mechanisms

as it is understood currently, which is ‘reporting

mechanisms developed to address agency issues’.

While these reporting and governance mechanisms

have been extended to address sustainability issues

through ESG and integrated reporting, most of them

are implemented in letter rather than in spirit. If firms

need to truly achieve the nexus of stewardship,

sustainability and social responsibility across all

levels of the organisation, then new processes,

metrics, procedures and enlightened governance

mechanisms need to be developed. Only then

will organisations achieve the true sweet spot of

stewardship, sustainability and governance. Many of

the relatively smaller firms highlighted earlier might

be achieving this nexus already due to the leaders’

active involvement which reduces the need for new

governance mechanisms or are implicitly practicing

these mechanisms without having anything in writing.

However, if firms are to achieve true legacy and the

nexus of the three concepts over the long term, then

the aforementioned gaps in the research and literature

would need to be addressed.

We now quickly discuss some limitations and utility of

the nexus framework.

One criticism of the nexus framework could be

the fact that we interpret governance as new and

enlightened governance mechanisms (that do not

for the most part exist currently) only for the sweet

spot segment D (and to a lesser extent segment A).

Whereas for other segments, we interpret governance

mechanisms as agency theory-based governance

mechanisms that exist currently. While the nexus

framework developed in Figure 5.1 itself might be

not clear in this respect, we think it still provides a

valuable tool for companies to assess where they are

in their sustainability and stewardship journey.

Another criticism could be the lack of a self-

diagnostic tool for companies to assess where they

stand currently in this nexus framework. While this

is a topic for further research, we provide a rough

preliminary tool (set of questions) that can be used by

companies to assess themselves. Clearly, this needs

further refinement. Please see the following section

to view our preliminary diagnostic tool.


5.1 Preliminary Self-Diagnostic Tool for Companies: To Identify their Position in the Stewardship-Sustainability-Governance Nexus FrameworkSelf-Diagnostic Questions

Set I

1. When making strategic and operational decisions, is your organisation’s leadership and management

focused on the long-term positive impact to shareholders?

2. Provided the long-term returns to the shareholders are above a certain threshold, is your organisation’s

leadership and management willing to accept a reduction in shareholder returns in order to achieve a

long-term net positive impact to all stakeholders?

3. When there is trade-off between short-term profits, long-term profits and net long-term positive

impact to all stakeholders, do you choose the long-term positive impact for shareholders and all

stakeholders over short-term profits?

4. If your answer to Q1, Q2, and Q3 is yes, is your leadership able to incentivise and convince all

employees in the organisation to take decisions along these lines?

Set II

5. Is your organisation focused on reducing the negative environmental and societal impact from its

operations?

6. Is your organisation focused on reducing the negative environmental and societal impact from the

operations of its partners in the supply chain?

7. Is your organisation focused on creating positive environmental and societal impact by developing

and working relentlessly on ambitious environmental targets such as zero carbon emissions and net

positive social impact?

8. Does your organisation have a focused strategic plan to eliminate or reduce its negative environmental

and societal impact?

Set III

9. Does your organisation consciously follow current corporate governance guidelines, such as reporting

on Environment, Social and Governance (ESG reporting) through formats such as Global Reporting

Initiative (GRI) reporting guidelines or integrated reporting guidelines?

10. Does your Board of Directors meet on a regular basis and provide oversight to the company as per

current corporate governance and reporting guidelines?

11. Does your Board have subcommittees as suggested by current corporate governance guidelines

to provide oversight on matters such as sustainability, management compensation, prevention of

conflict of interests, prevention of corrupt practices and handling of whistle blowing cases?


Set IV

12. Has your company developed new procedures, processes and/or enlightened governance and

management mechanisms to ensure that all day-to-day decisions taken by employees take into

account the long-term interest of all stakeholders and shareholders, as well as the environment

and society?

Evaluation of Answers to the Self-Diagnostic Questions

• If you have answered “yes” only to a majority of questions in Set I, and not to others, then your

company is in the segment E (Corporate Stewardship) in the nexus framework.

• If you have answered “yes” only to a majority of questions in Set II, and not to others, then your

company is in the segment F (Sustainability) in the nexus framework.

• If you have answered “yes” only to a majority of questions in Set III, and not to others, then your

company is in the segment G (Governance) in the nexus framework.

• If you have answered “yes” only to a majority of questions in Set I and Set II, and not to others, then

your company is in the segment B (Corporate Stewardship and Sustainability) in the nexus framework.

• If you have answered “yes” only to a majority of questions in Set I and Set III (or Set I, II and III), and

not to others, then your company is in the segment A (Corporate Stewardship and Governance) in

the nexus framework.

• If you have answered “yes” only to a majority of questions in Set II and Set III, and not to others, then

your company is in the segment C (Sustainability and Governance) in the nexus framework.

• If you have answered “yes” only to a majority of questions in Set I, II and III, and not to Set IV, then

your company is in both segment B and segment C (Corporate Stewardship and Sustainability) and

(Sustainability and Governance) in the nexus framework, but not still in the ideal sweet spot of

segment D.

• If you have answered “yes” to a majority of questions in all the four Sets I, II, III and IV, then you are

in the ideal sweet spot (segment D) of the Corporate Stewardship, Sustainability and Governance

nexus framework.


Segment A: Governance and Stewardship

• Companies that have steward leaders and

have implemented governance codes with

stewardship intent would fall into this category.

• However, they lack focus on sustainability

and might not seek to negate harm on the

environment. But, it is likely easy for them

to transit to Segment D by addressing the

sustainability component.

Segment B: Sustainability and Stewardship

• Companies that have a stewardship mindset

with the implementation of sustainability related

outcomes would fall into this segment. This

would mean that some governance mechanisms

would have been implemented as well — though

not enough to fall into segment D.

Segment C: Sustainability and Governance

• Many companies would land on this segment

as sustainability and governance mechanisms

go hand in hand. However, companies need to

evolve beyond using traditional governance

mechanisms to enlightened ones fueled by a

stewardship mindset to get to segment D.

Segment D: Stewardship, Sustainability and

Governance

• Companies here have achieved the sweet

spot by implementing corporate stewardship,

sustainability and governance in their business.

• Organisations in this category are prepared to

face trade-offs — occasional negative impacts

to stakeholders in favour of long-term returns to

achieve a net positive effect.

• When the majority of organisations achieve

this state, it would be possible to have a more

inclusive form of capitalism.

Segment E: Corporate Stewardship

• This segment is usually empty because

companies that have achieved corporate

stewardship would have implemented

sustainability and governance measures as well.

Segment F: Corporate Sustainability

• This is also a mostly empty segment as firms

who practice corporate sustainability would have

implemented some measure of governance in

terms of regulation or reporting.

Segment G: Governance Mechanisms

• Most companies are in this segment. However,

though governance measures are in place,

no attempt has been made to incorporate

stakeholders’ interests and address the negative

impact of firms’ operations on the environment.

K E Y P O I N T S


Concluding Remarks and Future Research

6

We conclude this report with a short discussion

on the directions for future research. Stewardship

as a concept has been well defined over the years,

and its dimensions have been characterised by

a few scholars in the recent past and by SAC.

However, detailed guidelines, procedures, and

metrics to implement stewardship, and ideal

governance mechanisms have not been articulated

in the literature, even though some firms might be

practicing it well.

Therefore many companies that are renowned for

their sustainability efforts as well as their responsible

leadership and stewardship probably still implement

conventional governance practices to a great extent,

and have not developed next generation governance

mechanisms that can effectively implement

stewardship across the entire organisation. Such

companies would belong to both segment B and

segment C, but not segment D. Further research

is therefore required to develop guidance to help

companies progress from their current state to the

espoused state as exemplified by the nexus. As

detailed guidelines, procedures and metrics, as well as

enlightened governance mechanisms are developed

for implementing stewardship, we would predict that

many of these procedures and guidelines would be

common for implementing corporate sustainability

as well, since both are essentially focused on the

stakeholders, society and the environment. In the

ideal scenario, stewardship provides the leadership

and management mindset to effectively implement

guidelines, procedures and processes that focus

on all stakeholders for the long term, and with

enlightened governance mechanisms, achieve

corporate sustainability and responsible operations.

If organisations in the world are able to achieve the

ideal nexus of corporate stewardship, sustainability

and governance, we would have addressed many of

the grand challenges we face today.

We hope that we have generated interest and

stimulated thoughts in this understudied topic and

we welcome scholars and practitioners to advance

the discourse on stewardship collectively.

K E Y P O I N T S

• There is a need to develop enlightened

governance mechanisms that are oriented

towards stewardship and will enable the

implementation of a stewardship mindset.

• The nexus of corporate stewardship,

sustainability and enlightened governance

mechanisms is where all companies should

strive to reach to achieve a better form of

capitalism.


Glossary7

Stewardship Theory

Assumptions:

a) Manager is not an opportunistic shirker, but someone who wants to do a good job and be a good steward of

corporate assets.

b) Executives’ interests could be isomorphic with those of the shareholders’ and other stakeholders’ so that

by serving shareholder and stakeholder interests, it also serves their own values and needs.

• Stewardship: the extent to which an individual willingly subjugates personal interests to act in protection of

others’ long-term welfare; stewardship behaviours are a type of prosocial action.

• Steward leadership is seen as a special case of leadership encompassing (a) one-on-one relationships

with followers consistent with the dyadic theory; (b) transformational and transactional leadership; (c)

implicit and explicit social contracts; (d) empathy for the follower; (e) long-term vision; and (f) constant

management of meaning.

• Ethical stewardship: integrates long-term wealth creation, a commitment to the transformational interests

of stakeholders, and creating organisation systems that reinforce both instrumental and normative

organisational goals over the long term.

In view of stewardship being a relatively nascent concept, there is a need to establish more clarity on the notion.

In our main report, we have juxtaposed the concept of stewardship against the two mainstream concepts of

corporate governance and sustainability. Here, we discuss stewardship along with a broader range of related

secondary concepts to mitigate confusion and ambiguity. The synergistic and distinguishable attributes of

these related notions with stewardship are mapped out in this section. However, as with all knowledge, these

concepts are co-evolving simultaneously and the interpretations should be reviewed periodically for relevancy

and currency.

Agency Theory

Definition Relationship with Stewardship

• Theory states that managers will not act to

maximise the returns to shareholders unless

appropriate governance structures are

implemented that incentivise them to align

their interests with the shareholders.

• 'Model of man' — theory X; self-interested

actor, individualistic, rationally maximising his/

her own personal economic gain.

• Stewardship theory introduced as a direct

contrast to Agency theory.

• Other 'Model of man' — individual motivated by

a need to achieve, to gain intrinsic satisfaction,

perform challenging work, gain recognition

(hence, non-financial motivators).



• Agency loss: the extent to which the returns

to owners fall below what they would be, if the

owners (principals) exercised direct control of

the corporation.

• Board of directors: a group of people that

are entrusted with the task of governing the

corporation and its agent managers. It is a key

structural mechanism to curtail managerial

'opportunism'.

• Stewardship theory defines situations in which

managers are not motivated by individual goals

but rather are stewards whose motives are

aligned with the objectives of their principals

and other stakeholders.

Agency Theory (continued)

Conscious Capitalism


Five key characteristics:

• Higher purpose — long-term profitability is the

objective. Profits are viewed as a means to

some greater end.

• Stakeholder orientation — committed to meet

the legitimate needs of the organisation’s

multiple constituencies (stakeholders), with a

focus on triple bottom line.

• Integrated strategies — ethics, sustainability

and social responsibility are integrated into

their core business strategies.

• Healthy culture — strong sense of community

internally, with high employee participation in

decision making as well as sharing of profits.

• Values-based leaders — ‘servant leadership’ is

the idea, as CEOs are modestly paid relative to

their peers.

• Conceptually, comes close to (ethical)

stewardship.

• Claims that meeting the interests of other

stakeholders is ideally the best strategy for

creating profits for owners.

• However, principles of Conscious Capitalism

provide no guide to help managers recognise,

let alone manage, the kinds of painful trade-

offs all firms must periodically be prepared to

make in order to survive — similar to current

state of knowledge in stewardship.


Corporate Social Responsibility (CSR)


• Context-specific organisational actions and

policies that take into account stakeholders’

expectations and the triple bottom line

of economic, social and environmental

performance.

• Includes actions that appear to further some

social good, beyond the interests of the

firm and that which are required by law. This

definition underscores that, to us, CSR means

going beyond obeying the law. Thus, a company

that avoids discriminating against women

and minorities is not engaging in a socially

responsible act, it is merely abiding by the law.

• CSR questions the limits of capitalism, greater

inequality, and exploitation of labour — drawing

on normative reasoning and welfare economics

to judge suitability of corporate actions.

• CSR has the potential to improve a firm’s

reputation and goodwill with external

stakeholders, which can possibly result in

increased financial performance eventually.

• Another popular concept that comes close

to stewardship. However, the focus of CSR

is on corporate actions that focus on triple

bottom line. Stewardship, on the other hand,

emphasises a form of responsible (ethical)

leadership that can lead to CSR activities.

• CSR does not investigate what kind

of leadership can facilitate social and

environmental contributions by organisations.

• CSR, thus, is outcome or activity focused,

where stewardship is a process of leadership

and management.

Environmental, Social and Governance (ESG)


• It covers a variety of issues related to the

environment (e.g., climate change, energy

and water use, carbon emissions), social

responsibility (e.g., fair trade principles,

human rights, product safety, gender equality,

health and safety), and corporate governance

(e.g., board independence, corruption and

bribery, reporting and disclosure, shareholder

protection).

• Similar to stewardship in terms of pushing

organisations to consider their effects on all

stakeholders. However, it does not focus on

the kind of leadership that can enhance ESG

activities.

• Seen as a key indicator of management

competence, risk management and non-

financial performance.

• Can also be viewed as an important

consequence of stewardship-based

organisations.


Environmental, Social and Governance (ESG) (continued)


• ESG criteria are a set of standards for a

company’s operations that socially conscious

investors use to screen potential investments.

• Like sustainability and CSR, ESG thus is

outcome or activity-focused — the processes

used to achieve it can be varied. Whereas

stewardship is focused on the process of

leadership and management.

• Unlike sustainability, ESG is more focused

on reporting and reporting standards.

Stakeholders and investors focusing on impact

investing are key users of ESG reports.

Governance


• Determination of the broad uses to which

organisational resources will be deployed and

the resolution of conflicts among the myriad

participants in organisations.

• Traditionally, researchers have focused on

the control of executive self-interest and the

protection of shareholder interests in settings

where ownership and control are separated

(hence, emphasis on mechanisms available

to protect shareholders from the whims of

executives).

• Dominant theoretical perspective: agency

theory.

• Current forms of governance mechanisms

are primarily devised based on agency theory

perspectives to control rogue behaviour

of managers or agents. This lends itself to

achieving minimum standards rather than

exemplar performance.

• Stewardship theory provides an alternative to

the agency theory (which argues that the role

of CEO and Chairman should be split to avoid

agency losses). However, empirical studies

have not supported this argument. In contrast,

Stewardship theory suggests that the fusion

of the roles of CEO and Chairman will produce

superior long-term performance, when the

management philosophy is built upon high

levels of trust.

Impact Investing


• It involves actively placing capital in

enterprises that generate social or

environmental goods, services, or ancillary

benefits such as creating good jobs, with

expected financial returns ranging from the

highly concessionary to above market.

• Primarily emphasises the investment part of

stewardship i.e. financial stewardship.


Integrated Reporting (IR)


• It refers to representation of the financial and

non-financial performance of a company in a

single report. This helps in providing a greater

context to the non-financial data such as

how the company performs on environmental,

social and governance (ESG) parameters, how

sustainability is embedded in the core business

strategy etc.

• Primary objective of integrated reporting is

to help stakeholders analyse and assess the

company’s ability to create and sustain value in

the medium- and long-term.

• IR can be viewed as one of the standards for

ESG reporting.

• Concentrates only on reporting mechanisms

for analysing environmental and social impacts

of the organisations. Stewardship goes deeper

and examines the kind of leadership that could

lead to positive consequences for the society.

• Like ESG, IR is focused on reporting and

reporting standards for environmental and

social impacts.

• IR as well as ESG reporting provides greater

information about the organisations’

environmental and social impacts.

• For investors who are interested in impact

investing, responsible investing and moral

capitalism (or investor stewardship in general),

IR helps them make better investing decisions

that balances their returns with impact on the

society and environment

Moral Capitalism


• Capitalism with a sense of ‘greater social

responsibility’ on the part of businesses.

• It includes considering the interests of all the

stakeholders.

• Four principles:

a) Material wealth, not greed

b) Industriousness

c) Social responsibility

d) Human dignity

• A relatively new concept. Examines capitalism

through the moral and religious perspective.

Does not look at the kind of leadership required

to sustain such form of capitalism.

• Conceptually similar to conscious capitalism.

Both are concepts propounded by practitioners

and there is not much of literature yet on these

ideas.


Psychological Ownership


• The state of mind in which a stakeholder in

the organisation feels as though they own the

organisation and is responsible for its long-

term value created to shareholders, investors

and other stakeholders.

• Related to stewardship. It is argued that

psychological ownership is a key predictor

of responsible leadership i.e. stewardship

behaviours.

Responsible Investing


• An investment process that integrates ESG

considerations into investment decision making

to generate long-term competitive financial

returns and positive societal impact.

• Responsible investors include, among others,

individuals seeking to invest in companies

with good ESG practices; credit unions and

community development banks serving low-

income and middle-income communities;

foundations supporting community development

loan funds and other high social impact

investments in line with their missions; and

venture capitalists identifying and developing

companies that provide social benefits.

• Similar to impact investing — emphasises the

investment part of stewardship i.e. financial

stewardship.

• Responsible investors follow a utilitarian logic

for investing ethically. They attempt to obtain

both the utility from the financial return on

investment and also the satisfaction from the

sense of having ‘done well and done right’.

Servant Leadership


• The Servant-Leader is servant first. It begins

with the natural feeling that one wants to

serve others including all followers. Then

conscious choice brings one to aspire to lead.

• The best test of servant leadership is this: Do

those served grow as persons? Do they, while

being served, become healthier, wiser, freer,

more autonomous, and more likely to become

Servant-Leaders themselves?

• A Servant-Leader has the role of a steward who

holds the organisation in trust.

• Employees are seen as the most important

stakeholder, but it does not necessarily lay

emphasis on taking care of other stakeholder

interests.


Social Entrepreneurship


• Social entrepreneurship involves ‘‘the

innovative use and combination of resources to

pursue opportunities to catalyse social change

and/or address social needs” (Mair and Marti

2006).

• Social entrepreneurs are often depicted

as being driven by an ethical obligation and

commitment to help others, which leads them

to start social enterprises that are guided by

the entrepreneur’s ethical and moral values.

• Social entrepreneurship concentrates on the

end objectives of entrepreneurs i.e. addressing

social needs.

• In contrast, stewardship states that all

organisations can potentially take care of

social and environmental needs.

• Stewardship is a process-based concept,

arguing that responsible leadership is a

key means that should be adopted by all

organisations and not just social entrepreneurs.

Stakeholder Theory


• Stakeholder theory arises from the belief that

corporations (informally) need a social license

to operate, and hence the stakeholders’

interests need to be taken into consideration

in their strategies and operations.

• Involves values, choice, and assessment

of harms and benefits to the various

stakeholders of the organisation, including

government, customers, investors, employees,

communities, suppliers, trade associations

and environment.

• Stakeholders are entities that affect the

wealth creating capacity of the firm —

attending to their interests is a strategic

imperative.

• Under stakeholder theory, CEOs may serve the

stakeholders in a strategic way, such that the

firm’s wealth is maximised.

• The theory takes a limited perspective of

managing organisations. Essentially, the risk of

brand damage due to stakeholder perceptions

are minimised, while the firms’ profits are

maximised.

• Stewardship includes treating employees as

owners, and striving towards ethical leadership

and long-term wealth maximisation (towards

the benefit of society).


Sustainability


• Sustainable Development is defined as

“development that meets the needs of the

present without compromising the ability of

future generations to meet their own needs”

(Brundtland Report).

• Corporate Sustainability refers to strategies

(and related plans, activities, processes and

structures) that can help corporations sustain

themselves as well as their people, natural

resources and communities for the long run.

• The focus on sustainability among corporations

has emerged in the last twenty years due to

global challenges such as climate change.

The threat to humans due to climate change

itself has occurred due to excess industrial

production and human consumption that has

contributed to environmental imbalances,

whose effects are becoming more visible only

in the recent past.

• Similar to stewardship in terms of long-term

orientation and final organisational goals,

i.e. maximising firm performance along with

reducing the negative impact on environment,

society and other stakeholders.

• However, sustainability is outcome or activity-

focused; the processes used to achieve it can

be varied. Whereas, stewardship is focused on

the process of leadership and management.

In the literature on sustainability, there is

limited discussion on the kind of (responsible)

leadership that is needed to reduce negative

effects on environment and society.

• Stewardship can be seen as one way to

achieve corporate sustainability, especially in

the absence of polices and climate change or

environment related taxes.

• Sustainability, CSR and ESG are closely related.

CSR focuses on social aspects of the external

stakeholders and can be viewed as a subset

of sustainability. ESG is focused on reporting

and reporting standards for sustainability and

social responsibility.

Trusteeship


• Mahatma Gandhi advocated that private

entrepreneurs run businesses as trustees

and use the wealth they create to improve

society, after keeping a reasonable profit for

themselves.

• Expands the concept of ‘shared value’ through

reciprocal responsibility principles. Ethical

capitalism can develop when trustees balance

self-interest with prosocial goals.

• Overall, trusteeship as a concept (as defined by

Mahatma Gandhi) is close to stewardship. Both

stewardship and trusteeship theories propose

that managers must balance their fiduciary

(trustee) duties with non-fiduciary moral duties

to other stakeholders.


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AppendixResearch Methodology

The literature review consisted of a search and selection process with the aim of filtering and identifying

the most relevant publications for this project. Papers of highest relevance across management, leadership,

strategy, entrepreneurship, and family business literatures were selected for the detailed analysis. As the

selection criteria, we selected papers in the following categories:

1. Reviews, theory building and conceptual papers

2. Editorials and commentaries

3. Practitioner articles

4. Empirical papers on stewardship, sustainability and governance

5. Book chapters on stewardship

6. Meta-analytical reports

During the extensive search for studies, we selected papers from top journals such as Academy of Management

Review, Academy of Management Journal, Academy of Management Annals, Harvard Business Review, California

Management Review, Journal of Management, Journal of Business Ethics, Journal of Business Venturing,

Organisation Science, and the Strategic Management Journal. In addition, highly cited relevant papers from

other journals were also selected. Importantly, references of key papers on stewardship, governance and

sustainability were searched to identify more papers on the same topics.

For the search, we used the Scopus and Google scholar databases using the following keywords: stewardship

theory, corporate governance, agency theory, ethical stewardship, corporate sustainability, sustainable

governance, stakeholder theory, corporate responsibility, corporate social responsibility, servant leadership,

family business, and social entrepreneurship.

1. In the first step, review, conceptual and empirical papers on ‘stewardship theory’ were explored. Based on

the electronic search carried out in the Scopus database, 290 abstracts were studied to select 35 relevant

papers around stewardship.

Exclusion criteria:

a) Papers which did not contribute significantly to the understanding of stewardship

b) Empirical studies that did not have stewardship as the key topic in the model

c) Papers not from top journals, or papers that did not cite any of the more influential

‘Stewardship theory’ articles

Search Topic

Total number of

papers identified

(Abstracts studied)

Number of papers

excluded from

further review

Number of relevant

papers

Stewardship Theory 290 255 35

Table 3.1: Papers identified for 'Stewardship Theory'

9


Inclusion criteria:

We selected conceptual and review papers on corporate stewardship. Papers that discuss or compare

stewardship with other relevant concepts were also included. Since this project is focused on stewardship

theory and the conceptual underpinnings of stewardship, we included only recent empirical studies over

the last five years from top business, management, strategy, and leadership journals. Such journals tend

to provide stronger arguments and thus, are more likely to help improve our understanding of stewardship

along with its relationship with other key conceptual domains. Preference was also given to papers that had

stewardship as the key or central theme in their model or framework.

On stewardship theory, we found about 290 papers. Broadly, the papers were in the following domains:

1. Conceptual/review papers: 10

2. Empirical studies on corporate stewardship: 25

3. Family business/entrepreneurship: 40

4. Education/healthcare/public sector: 50

5. Other empirical studies (just brief discussion on stewardship): 165

Even though stewardship theory was introduced in the 1990s, research interest in this topic has

significantly increased in the last decade (since 2006–07). More than half of the research papers belonged

to the business and management domain. And within business and management literature, most research

has been conducted in the family business area. There are papers conducting empirical research in the

family business domain, but very few empirical studies are found in the general business and management

domain. Finance and economics is another area in which research articles have used stewardship theory

substantially.

2. As the second step, papers on ‘corporate sustainability’ were searched. Based on the search carried out in

the Scopus database, 1,150 abstracts were studied to select 75 relevant papers around sustainability. The

criteria for selection included conceptual/theoretical papers, review articles, as well as recent empirical

papers.

We found a large number of research papers on corporate sustainability. Firstly, more than two-third of

the projects were from the developed countries such as United States, United Kingdom, Germany and

Australia. Secondly, only about one-fourth of the papers belonged to the business and management area.

On the other hand, a greater share of papers (about 40 per cent) used the term ‘corporate sustainability’

while working in the environment sciences, energy and engineering domains. Importantly, about 20 per cent

of the articles on corporate sustainability were from the social sciences, arts and humanities domains.

Search Topic

Total number of

papers identified

(Abstracts studied)

Number of papers

excluded from

further review

Number of relevant

papers

Corporate Sustainability 1,570 1,495 75

Table 3.2: Papers identified for 'Corporate Sustainability'


4. We then searched for relevant articles on corporate governance and agency theory. This being a heavily

researched topic, more than 18,000 papers were found. We limited the research to top business,

management, strategy and finance journals. This reduced the number of papers to 1,050. After reading the

abstracts, we finally included 80 papers in the literature review.

Inclusion criteria:

Papers from top journals, preferably conceptual, theoretical, review or meta-analysis around the corporate

governance or agency theory themes were selected. Articles which compared agency theory with other

relevant topics such as social responsibility or stewardship were included. Finally, papers which critiqued

governance mechanisms using agency theory were also included for the project.

Among the papers found on ‘corporate governance’, the largest share (more than 40 per cent) of the

studies were from the business and management domain. Next, about one-fourth of the articles belonged

to economics and econometrics literature.

Search Topic

Total number of

papers identified

(Abstracts studied)

Number of papers

excluded from

further review

Number of relevant

papers

Stewardship AND

Corporate Sustainability18 18 0

Search Topic

Total number of

papers identified

(Abstracts studied)

Number of papers

excluded from

further review

Number of relevant

papers

Corporate governance 1,050 970 80

Table 3.3: Papers identified for 'Stewardship' AND 'Corporate Sustainability'

Table 3.4: Papers identified for 'Corporate Governance'

3. Next, we searched papers covering both the concepts i.e. ‘stewardship theory’ and ‘corporate sustainability’.

Based on the search carried out in the Scopus database, 18 abstracts were studied but no relevant paper

was found. The 18 papers were in the following domains:

a) Environment/public affairs: 6

b) Empirical studies on sustainability: 7

c) Book chapters: 5


5. As the next step, we searched for papers covering ‘corporate governance’ and stewardship. This would allow

us to study the nexus between the two themes. Even though corporate governance is a heavily researched

area, we found only about 190 papers on governance that also included or discussed stewardship.

More than half of the studies belonged to the business and management domain. About 20 per cent of the

studies were from the economics area. Several of the papers were discussing the UK stewardship code or

forest stewardship instead of the general concept of stewardship.

Search Topic

Total number of

papers identified

(Abstracts studied)

Number of papers

excluded from

further review

Number of relevant

papers

Stewardship AND

Corporate governance190 160 30

Table 3.5: Papers identified for 'Stewardship' AND 'Corporate Governance'

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